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Economy in Brief

U.S. ISM Nonmanufacturing Index Moved Higher Again
by Tom Moeller February 4, 2009

The January Composite Index for the nonmanufacturing sector from the Institute for Supply Management (ISM) rose for the second consecutive month. The rise to 42.9 raised the level to its highest since October and it was much firmer than Consensus expectations for a reading of 39.0. A level of the ISM indices below 50 indicates declining activity. Since the series' inception in 1997 there has been a 48% correlation between the level of the business activity index for the nonmanufacturing sector and the Q/Q change in real GDP for the services and the construction sectors.

The rise in the overall figure last month was led by improvement in the business activity sub-component, also its highest since October. The new orders sub-index increased as well to 41.6.

The employment index was relatively less robust and was about unchanged from December at 34.4, but that was still up moderately from the November low. Since the series' inception in 1997 there has been a 56% correlation between the level of the ISM nonmanufacturing employment index and the m/m change in payroll employment in the service-producing plus the construction industries.

Pricing power firmed as well to a reading of 42.5 which was the highest since October. Since its inception ten years ago, there has been a 60% correlation between the price index and the q/q change in the GDP services chain price index.

Beginning with the January 2008 Nonmanufacturing Report On Business®, the composite index is calculated as an indicator of the overall economic condition for the non-manufacturing sector. It is a composite index based on the diffusion indexes for four of the indicators (business activity, new orders, employment and supplier deliveries) with equal weights. The latest report from the ISM can be found here.

ISM surveys more than 370 purchasing managers in more than 62 industries including law firms, hospitals, government and retailers. The nonmanufacturing survey dates back to July 1997.

ISM Nonmanufacturing Survey January December January '08 2008 2007 2006
Composite Index 42.9 40.1 44.6 47.4 53.5 55.7
Prices Index 42.5 36.1 71.2 66.0 63.8 65.3
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